Restrictions on H-1B visas put by the Donald Trump administration in the United States have unnerved India. The restrictions will affect the margins of bellwether Indian and foreign IT companies, which employ thousands of Indians in their US operations.

After trying to convince the US through soft communiques on the issue, the Indian government is now exploring some harsh measures to put the US under pressure.

On 20 April, Union Commerce Minister Nirmala Sitharaman hinted that if the US did not change its stance on H-1B visa norms, India could retaliate by restricting the royalty payments by the Indian subsidiaries of US-based companies to their parent companies.

“It is not just that Indian companies are in the US; several big US companies are in India too. They are earning their margins, they are earning their profits, which go to the US economy. It's not just a situation where only the Indian companies have to face the US executive orders. There are US companies in India which have been doing business for some years now. If this debate has to be expanded, it has to be expanded to include all these aspects. We shall ensure that all these factors are kept in mind,” Sitharaman was quoted by the Mint newspaper.

Indians are the biggest beneficiaries of H-1B visas, followed by the Chinese nationals. In 2014, as many as 70% of total H-1B petitions approved were from Indians.

According to Computerworld, nearly 86% of the H-1B visas issued for workers in computer occupations go to Indian workers.

Trouble could be afoot

Former secretary of the Department Of Industrial Policy & Promotion, Ajay Dua, says: “If India is thinking on these lines, it would translate to a full-fledged trade war with the United States, and will affect the relationship of two nations. In a free trade economy, India can put sectoral curbs on royalty payments by subsidiaries of foreign companies having their businesses in India. But to choose companies from a specific country and curb their royalty payments would be a difficult thing to defend in court.”

Dua further adds that the US is India's biggest trade partner, and escalating the issue to that level will affect the Indian economy in a much bigger way.

In 2016, India had a trade of $42 billion with the US, and the country accounted for 16.1% of total Indian exports.

A corporate lawyer, who advises the Government of India on legal matters, says on the condition of anonymity: “Today, India's foreign exchange controls are not a WTO commitment, and if the government decides it will not allow royalty payments, then it is its prerogative. However, if it decides to single out only US-based companies, that can be taken to the WTO on charges of discriminatory treatment.”

The lawyer further adds: “You can favour certain countries under the free trade agreement. But you cannot punish a particular country.”

Former Additional Solicitor-General Biswajit Bhattacharya, however, believes that India “has the power to formulate a policy that backs such a decision legally. Such measures fall in the realm of India's foreign policy, and it is up to the government how it wants to move ahead on the issue.”

Another corporate lawyer, requesting anonymity, says: “It is not just the US which has introduced visa curbs for immigrants. There are countries like Australia, Singapore and the UK; all of them are resorting to protectionism. It would be really tough to deal with the current situation by singling out one country.”